T.Y.B.Com Accounting

and Finance
                                       Module – I 
                       Production Management
Assistant Professor
Pillai College of Arts, Commerce & Science
(Autonomous)
New Panvel
Affiliated to University of Mumbai
 
 
 
 
 
 
Production Management
• Meaning / Concept:
• Production Management refers
to the
application of management
principles to
the production function in a
factory. In
other words, production
management
involves application of
planning,
organizing, directing and
controlling the
production process.
• Definition:
• According to E.F.L. BRECH, “
Production management then becomes
the process of effectively planning and
regulating the operation of that part of an
enterprise which is responsible for actual
 transformation of materials into finished
products”.
Objectives of Production Management

1. To produce quality goods 

2. To increase productivity 
3. To reduce waste 
4. Customer satisfaction 
5. Profitability 
6. Optimum utilization of resources 
7. Deliver the product in time to the right place
8. To reduce cost of production
9. Expansion of business
Scope of Production Management
Production Management is a vast concept it involves a huge chain. Production starts
with input and ends with output i.e. finished product. Following are the scope of
production management 1. Location of Facilities:
The selection of location is a key decision as large investment is made in building,
land, and machinery.
2.Plant Layout & material handling:
Plant layout refers to the physical arrangement of facilities. Material handling refers
to the moving of material from the storeroom to the machine & from machine to the
next during the process of manufacturing.
3.Product Design:
Product design deals with the conversion of the ideas about the
product into the reality 4.Process Design:
It is the decision making on overall process route for converting the raw material
into the finished goods
Scope of Production Management
5.Production Planning & Controlling ( P.P.C)
P.P .C can be defined as the process of planning the production in
advance, setting the exact route of each item, fixing the starting &
finishing dates for each item to give production orders to shops & to
follow up the progress of products according to the orders.
6.Quality Control
Quality control may be defined as a system that is used to maintain a
desired level of quality in a product & service.
 7.Material Handling
Material management is that aspect of management function which is
primarily concern with the acquisition control & use of the needed
material.
8.Maintenance Management
Maintenance deal with taking care of factory layout, types of
machinery. This is essential for equipment & machinery which are a
very important part of the total production process.
Production Planning &Control (PPC)
• Meaning/ Concept:
• Production Planning and Control (PPC) involves planning, routing,
scheduling, dispatching and Follow up to coordinate the movements of
materials, machines, and manpower as to the quantity, quality, time and place.
It is based upon the fact of “first plan your work and then work your plan”.

• Definition:
Production planning and control can be defined as the process of planning
the production in  advance, setting the exact route of each item, fixing the
starting and finishing dates for each item,  to give production orders to
shops and to follow up the progress of products according to orders.

Steps of Production Planning &Control (PPC)

Dr. Seema
Somani

Steps of Production Planning &Control

(PPC) • There are four stages or essential elements in the process of
production planning and control.  These are as follows:
• 1. Routing:
Routing determines the path from which the raw materials flow within the
factory. Once, the  sequence is followed, raw materials are transformed into
finished goods. • Setting up time for every step is important to measure the
overall duration of the production  process. Simply saying, routing in
manufacturing states the sequence of work and operations.  Routing throws
light on the quantity and quality of materials to be used, resources involved 
(men, machine, and material), the series of operations and place of
production. • Routing manages “How”, “What”, “How much”, & “Where” to
produce in a manufacturing  company. It systematizes the process and
nurtures optimum utilization of resources to get the  best results.
• 2. Scheduling:
Scheduling is the second step that emphasizes on “When” the operation
will be completed. It  aims to make the most of the time given for
completion of the operation. • As per Kimball and Kimball, scheduling is
defined as –
• “The determination of the time that should be required to perform the
entire series as routed,  making allowance for all factors concerned.”
• Organizations use different types of schedules to manage the
time element. These  include Master Schedule, Operation
Schedule, Daily Schedule and more. Dr. Seema Somani

Steps of Production Planning &Control

(PPC)
• 3. Dispatching:
The third step ensures that operations are done successfully and everything is
loaded on the software.  Dispatching includes the release of orders, in accordance
with the scheduled charts. • Here are the points that encapsulate “Dispatching”
• Issue of materials or fixtures that are important for the production
• Issue of orders or drawings for initiating the work
• Maintain the records from start to end
• Initiate the control procedure
• Cascade the work from one process to another
• 4. Follow-up:
Also known as expediting, follow-up is the final step that finds faults or defects,
bottlenecks and  loopholes in the entire production process. In this step, the
team measures the actual performance  from start till the end and then compares
it with the expected one.
• Expediters or stock chasers are responsible for performing follow-up process. It is
quite obvious  that any of the processes may undergo break-downs or machine
failure. Follow-up promotes smooth  production by eliminating these defects.
 
 
 
 
 
 
Production Systems
Meaning/ Concept:
The production system is a union or combination
of its three main components viz., Inputs,
Conversion Process, and
Output. In short,
everything which is done to
produce goods and
services or to achieve the
production objective is
called a production system.

Definition:
“The methods, procedure or
arrangement which
includes all functions required
to accumulate
(gather) the inputs, process or reprocess the
inputs, and deliver the marketable output
(goods).”
 
 
 Types of Production Systems
• Meaning/ Concept:
• “Continuous/flow production situations are those where the facilities are
standardized as to routings and flow since inputs are standardized. Therefore a
standard set of processes and sequences of the process can adopted.”
a. Mass Production System (MPS):
• This production system refers to the manufacturing of standardized parts or
components on a large scale. Mass production system offers economies of scale as
 the volume of output is large. Quality of products tends to be uniform and high
due to standardization and mechanization. • b. Process Production System
(PPS):
• Process production is employed in the bulk processing of certain materials. The
typical processing Industries are fertilizers plants, petrochemical plants, and
milk dairies which have highly automated systems and sophisticated controls.
They are not labor-intensive and the worker is just an operator to monitor the
system and take corrective steps if called for.
• c. Assembly Production System (APS):
• Assembly line a type of flow production which is developed in the automobile industry
in the USA. In an assembly line, each machine must directly receive material from the
previous machine and pass it directly to the next machine. Machine and equipment
should be arranged in such a manner that every operator has free and safe access to
each machine. Space should be provided for free movement of forklifts, trucks, etc.
which deliver materials and collect finished products.
 
1.2 Types of Production Systems
• According to Buffa,
• “Intermittent Production System (IPS) are those where the facilities must be flexible
enough to handle a variety of products and sizes or where the basic nature of the
activity imposes a change of important characteristics of the input (e.g. change. in
the product design)”.
• a. Job Production System (JPS):
• Job or unit production involves the manufacturing of a single complete unit with the
use of a group of operators and process as per the customer’s order. This is a
“special order” type of production. Each job or product is different from the other
and no repetition is involved. The product is usually costly and non standardised.
• b. Batch Production System (BPS):
• Batch production pertains to repetitive production. It refers to the production of
goods, the quantity of which is known in advance. It is that form of production
where identical products are produced in batches on the basis of demand of
customers’ or of expected demand for products.
• c. Project Production System (PPS):
• Here, in project production flows, company accepts a single, complex order or
contract. The order must be completed within a given period of time and at an
estimated cost. Examples of project production flows mainly include, construction of
airports, dams, roads, buildings, shipbuilding, etc Dr.

• Meaning/ Concept:
Productivity
• Productivity means it measures how efficiently production
inputs, such as labour and capital are being used in an economy
to produce a given level of output. Productivity is considered a
key source of economic growth and competitiveness &
performance assessments.
Factors Influencing Productivity
 1.Technical factors: Productivity largely depends on technology. Technical factors are
the most important ones. These include proper location, layout and size of the plant
and machinery, correct design of machines and equipment, research and
development, automation and computerization, etc. If the organization uses the latest
technology, then its productiveness will be high.
2.Production factors: Productivity is related to the production-factors. The production
of all departments should be properly planned, coordinated and controlled. The right
quality of raw-materials should be used for production. The production process
should be simplified and standardized. If everything is well it will increase the
productiveness.
3.Organizational factor: Productivity is directly proportional to the organizational
factors. A simple type of organization should be used. Authority and Responsibility
of every individual and department should be defined properly. The line and staff
relationships should also be clearly defined. So, conflicts between line and staff
should be avoided. There should be a division of labor and specialization as far as
possible. This will increase organization's productiveness.
4.Personnel factor: Productivity of organization is directly related to personnel
factors. The right individual should be selected for suitable posts. After selection,
they should be given proper training and development. They should be given better
working conditions and work-environment. They should be properly motivated;
financially, non-financially and with positive incentives. Incentive wage policies
should be introduced. Job security should also be given. Opinion or suggestions of
workers should be given importance. There should be proper transfer, promotion and
other personnel policies. All this will increase the productiveness of the organization.
5. Finance factor: Productivity relies on the finance factors. Finance is the life-blood of
modem business. There should be a better control over both fixed capital and working
capital. There should be proper Financial Planning. Capital expenditure should be
properly controlled. Both over and underutilization of capital should be avoided. The
management should see that they get proper returns on the capital which is invested in
the business. If the finance is managed properly the productiveness of the organization
will increase.
6. Management factor: Productivity of organization rests on the management factors.
The management of organization should be scientific, professional, future-oriented,
sincere and competent. Managers should possess imagination, judgment skills and
willingness to take risks. They should make optimum use of the available resources to
get maximum output at the lowest cost. They should use the recent techniques of
production. They should develop better relations with employees and trade unions.
They should encourage the employees to give suggestions. They should provide a good
working environment, and should motivate employees to increase their output. Efficient
management is the most significant factor for increasing productiveness and decreasing
cost.
7. Government factor: Productivity depends on government factors. The management
should have a proper knowledge about the government rules and regulations. They
should also maintain good relations with the government.
8. Location factor: Productivity also depends on location factors such as Law and
order situation, infrastructure facilities, nearness to market, nearness to sources of raw-
materials, skilled workforce, etc
Techniques to improve Productivity
• 1) Providing various incentives to workers: Labour productivity can be increased to a
great extent by providing various wage and non-wage incentives to the workers. Some
of the important non-wage incentives are workers’ participation in management, job
security, praise of their work and giving proper recognition etc. Results shown by
workers’ participation in management are very encouraging and positive.
• (2) Provision of adequate health, safety and welfare measures: Health, safety and
welfare measures as given under Factories Act, 1948 should be provided to workers in
the factories. This will lead to lesser accidents and will considerably improve
productivity and overall efficiency of the workers.
• (3) Improved working conditions: Working conditions and environment of work
should be proper. There should be limited number of working hours followed by rest
pauses. Proper arrangements for light, ventilation and cleanliness etc., should be made.
These amenities have a positive impact on labour productivity
• (4) Application of scientific management: Scientific management techniques and
practices including the application of work, time and motion studies will lead to saving
in time and most effective utilisation of available resources and removal of wastage and
inefficiency which will greatly help in enhancing the productivity of workers and
machines.
• (5) Application of simplification, standardisation and specialisation to all
production activities: Process of simplification, standardisation and specialisation has
positive impact on productivity. Work is carried out systematically and in the most
effective manner thereby considerably reducing production costs and enhancing
productivity. The concepts of simplification, standardisation and specialisation have
been explained under scientific management. Dr. Seema Somani
• (6) Scientific selection and training of workers: Scientific selection,
placement and training is greatly helpful in increasing productivity of
the workers. Right type of candidate is selected for the right type of job.
• (7) Application of cost, quality and production control: Different
techniques of cost, quality and production control are very helpful in
increasing productivity. These concepts are explained in detail in
different chapters of this book.
• (8) Industrial research: Constant industrial research and
experimentation brings about new methods and techniques of
production which are greatly helpful in increasing industrial
productivity and total production.
• (9) Proper plant layout: The layout of machines and equipment should
be in such a manner which ensures smooth and unrestricted flow of
production operations and processes. Thus proper arrangement ensures
lesser work stoppages thereby increasing total volume of production and
productivity
• (10) Effective material handling and internal transport: Defective
system of material handling and improper internal transport system i.e.
taking material, equipment and tools from one job to another or from the
department to another adversely affects the productivity. On the other
hand, effective and proper system of material control and internal
transport is immensely helpful in enhancing productivity. An effective
system of material handling and internal transport can be ensured if
plant layout is effective.
Inventory Management
• Meaning/ Concept:
• Inventory Management refers to the
process of ordering, storing and using
a company's inventory. This includes
the management of raw materials,
components and finished products, as
well as warehousing and processing
such items.
 
  
 
Objectives of Inventory Management

1. To plan appropriate inventory level

2. To organize inventory
3. To deliver goods on time
4. To protect against variations in demand 
5. Effective use of capital
6. To lower cost of production 
7. To overcome the problem of duplication 
in ordering
8. To overcome blockade of working 
capital
9. Continuous production
 

Inventory Control- Techniques

• 1. ABC analysis. It means Always Better Control
• A B and C. These categories are based upon the inventory value and cost significance
.Items of High value and small in no. are termed as A Items of moderate value and
moderate in no. are termed as B. Items of small value and large in no. are in category C.
This inventory categorization technique splits subjects into three categories to identify
items that have a heavy impact on overall inventory cost.
• Category A serves as your most valuable products that contribute the
most to overall profit. • Category B is the products that fall somewhere
in between the most and least valuable.
• Category C is for the small transactions that are vital for overall profit but don’t matter
much individually to the company altogether.
• 2. Just-in-time inventory management:
• Just-in-time (JIT) inventory management is a technique that arranges raw material orders
from suppliers in direct connection with production schedules. It is a philosophy that
focuses attention on eliminating waste by purchasing or manufacturing just enough of the
right items just in time. It is a Japanese management philosophy applied in manufacturing
which involves having the right items of the right quality and quantity in the right place
and at the right time. It involves having products arrive as soon as the customers order
them.
 

3. Drop shipping:
 • Drop shipping is an inventory management fulfillment method in which
a store doesn’t actually keep the products it sells in stock. When a store
makes a sale, instead of picking it from their own inventory, they
purchase the item from a third party and have it shipped to the
consumer. The seller never sees our touches the product itself.
4. Economic order quantity:
• EOQ is a quantity of inventory which can reasonably be ordered
economically at time. In determining this point, ordering costs and
Carrying Costs are taken into consideration. Ordering costs are basically
the cost of placing an order Carrying cost includes costs of storage
facilities and loss of value through physical deterioration, cost of
obsolescence. The balancing point is known as Economic Order
Quantity. Economic order quantity, or EOQ, is a formula for the ideal
order quantity a company needs to purchase for its inventory with a set
of variables like total costs of production, demand rate, and other
factors. The overall goal of EOQ is to minimize related costs.
 
5. VED Classification:
In this classification of materials, V stands for Vital items without which the production process would come to
standstill. E denotes Essential items whose stock out would adversely affect the efficiency of the production system.
Their non availability might cause temporary losses. The D items are the Desirable items which are Required but do
not immediately cause a loss of production. The VED analysis is done mainly in respect of spare parts.
6. HML(High, Medium, Low) : The HML classification is same procedure as adopted in ABC. The core difference
is HML classification unit value is the criterion and not the annual consumption value. The inventories should be
place in descending order and it is up to mgmt to fix limits of these three categories.
7. FSN(Fast, Slow, Non moving) : The abbreviation for FSN in “Fast moving, Slow moving and Non moving”. Here
in this analysis, the date of receipt or the last date of issue, which ever is later, to determine the no. of months which
have lapsed from last transaction. FSN is helpful in identifying active items which need to be reviewed regularly and
surplus items and non- moving items are examined.
8. SDE(Scarce, Difficult, Easy) : The SDE is based upon the availability of items. Here ‘S’ refers to ‘Scarce’ items
‘D’ refers to ‘Difficult’ items ‘E’ refers to ‘Easy to acquire’ This is based on problems faced in procurement, were
some strategies are made on purchasing.
9. XYZ Analysis: This classification is based on the value of inventory of materials actually held in stores at given
time. This helps to control the average inventory model value. ‘X’ items which are 10% of no.of items stored, but
accounting for 70% of the total inventory value. ‘Y’ items are 20% of no.of items stored and account for 20% of total
inventory value. ‘Z’ items are 70% of no.of items stored and account for 10% of the total value. This analysis focuses
on efforts to reduce the inventory of these items.
10.Minimum-Maximum System: It is essential that proper control should be exercised on the level of the
inventory to be maintained.  Efficient management of inventory demands that both over and under investment in
stock be avoided.

Materials Management
• Meaning/ Concept:
• Material Planning is the scientific way of deciding the requirements of raw materials,
components and other items needed for production within the production enterprise. Materials
management is a core function of supply chain management, involving the planning and
execution of supply chains to meet the material requirements of a company or organisation.
These requirements include controlling and regulating the flow of material while
simultaneously assessing variables like demand, price, availability, quality, and delivery
schedules.
• Definition:
• According to L.J. De Rose,“Materials Management is the planning, directing,
controlling and coordinating those activities which are concerned with materials and
inventory requirements, from the point of their inception to their introduction into the
manufacturing process.”
• Objectives of Materials Management:
1.Effective material management minimizes the material cost so that profit can be
maximized.
2.To procurement and purchase materials of desired quality and quantity when
required, at the lowest possible overall cost.
3.Materials management try to reduce investment tied in inventories for use in
other productive purposes and develop high inventory turnover ratios.
4.To purchase, receive, transport and store materials efficiently to reduce the
storage and warehouse related costs.

1. Material Planning and Programming: - this consists of determining the total material
requirement for any project by considering all factors. It also consists of laying down standards
for the materials, substitutes, sources of supply etc.
2. Material Purpose: - this consists of locating and developing sources of supply, market
research for purchasing, calling of tenders, selection of suppliers, negotiations, contracting and
issuing of purchase orders. 3. Store Keeping: - This involves receiving and custody of purchased
materials. The materials should be stored in such a way that handling and damage caused is
minimum.
4. Inventory Control: - This is a system of locating, storing and recording of goods so that they
can be made available to the actual site at minimum total expenditure.
5. Quality Control and Inspection: - Quality control is the control of quality during
manufacturing. Inspection consists of comparing the actual products against previously laid down
standards and specifications. 6. Material Handling: - From the receipt of goods, inspection in
the storage and issue for use, materials should be handled in such a way so as to cause minimum
damage.
7. Disposal of Surplus, Obsolete and Scrap stock: - if surplus, obsolete and scrap stock is held
in possession, this involves inventory carrying, storage and security costs. Hence, this should be
disposed of as soon as possible. 8. Transportation: The transporting of materials from suppliers
is an important function of materials management. The traffic department is responsible for
arranging transportation service. The vehicles may be purchased for the business or these may be
chartered from outside. It all depends upon the quantity and frequency of buying materials. The
purpose is to arrange cheap and quick transport facilities for incoming materials. 9. Non-
Production Stores: Non-production materials like office supplies, perishable tools and
maintenance, repair and operating supplies are maintained as per the needs of the business. These
stores may not be required daily but their availability in stores is essential. The non-availability of
such stores may lead to stoppage of work. Dr. Seema Somani

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